Making Money in Real Estate Explained | Life for Sale
Summary
TLDRIn this video, the host addresses various real estate investment queries from the audience. He explains the concept of triple net properties, detailing how leveraging bank loans at 4% can yield profits of around 17%. He also discusses tax-free profits from living in a property for two years, improving it, and selling it at a higher value. The host shares tips on increasing property value through improvements and refinancing, selecting the right flooring for rentals, and buying properties with retail and residential spaces. He advises on legal eviction processes and staying financially secure during a recession by avoiding over-leveraging. The video concludes with a motivational push to find real estate deals and get into the business.
Takeaways
- 💼 Triple net properties can provide significant returns. Buying a property for $1 million with 80% bank financing and a 7% cap rate can yield a 16-17% return on the $200,000 down payment.
- 🏦 Paying a mortgage on a triple net property is a common practice. A $800,000 loan at 4% interest annually results in $32,000 paid to the bank, leaving a net income of $38,000 on the investment.
- 💰 The importance of leveraging bank financing is highlighted. By borrowing at 4% and collecting 7%, investors can earn a 3% spread on the bank's money.
- 🏠 Living in a property for two years as your primary residence can lead to significant tax-free profits when selling, especially if the property value appreciates.
- 🔄 The strategy of fixing, improving, and refinancing properties to extract equity and increase cash flow is discussed.
- 👨👩👧👦 For married couples, leveraging the tax-free profit on a primary residence can lead to substantial wealth accumulation.
- 🏡 Tile and laminate flooring are recommended for rental properties due to their durability and low maintenance.
- 🛒 Combining commercial and residential spaces, like a storefront with an apartment above, can be a good investment if located in the right area.
- 🚫 Evictions should be handled legally and with the assistance of a lawyer to avoid potential lawsuits.
- 💡 When facing a potential recession, avoid over-leveraging on properties and ensure that mortgage payments can be comfortably made.
- 🏢 Large homes with low price per square foot might seem like a good deal, but the lack of buyers can make them a poor investment.
Q & A
How much profit can one expect from a Triple Net property investment?
-A Triple Net property investment can yield a profit of around 16 to 17 percent. This is calculated by using the bank's money at a 4% interest rate while collecting rent at 7%, resulting in a 3% spread. Additionally, the investor's own money typically earns around 7%.
What is the significance of the term '7 cap' mentioned in the script?
-A '7 cap' refers to a 7% capitalization rate, which means that a property generates an annual net income equal to 7% of its purchase price. For example, a property bought for $1 million would generate $70,000 per year in net income.
How does the mortgage affect the income from a Triple Net property?
-The mortgage payment, typically around 4% of the loan amount, reduces the net income from the property. For instance, if the property generates $70,000 annually and the mortgage interest is $32,000, the net income after mortgage payment is $38,000.
What is the tax implication of living in a property for two years before selling it?
-If you live in a property as your primary residence for at least two years, any profit made from selling the property is tax-free up to $250,000 for single individuals or $500,000 for married couples.
Why is it recommended to buy a property with a building in a Triple Net lease?
-Buying a property with a building allows the investor to depreciate the property, which can significantly reduce tax liability. Land leases do not offer this advantage.
What is the strategy for increasing the value of a property before refinancing?
-The strategy involves making improvements to the property, such as fixing and managing it better, which can increase its value. Once the value is increased, the property can be refinanced to pull out equity, which can be used for cash flow or further investments.
What is the advantage of doing a 1031 exchange in real estate?
-A 1031 exchange allows an investor to sell a property and reinvest the proceeds into another property without paying capital gains tax, thus deferring taxes and allowing for continuous investment growth.
What is the speaker's opinion on living in a steel shipping container converted into a living space?
-The speaker is uncertain about living in a converted shipping container and suggests visiting or even spending a night in one to make an informed decision.
What is the recommended flooring for a rental property according to the script?
-Tile or a high-quality laminate that resembles tile is recommended for rental properties because they are durable, easy to clean, and do not show wear and tear as easily as carpeting.
What potential issues should one consider when buying a storefront with an apartment on top?
-When buying a storefront with an apartment on top, consider the location, the ability to rent both spaces, and the potential noise or disturbance from the retail operation affecting the residential tenant.
What advice does the speaker give regarding evictions of tenants?
-The speaker advises to handle evictions legally by hiring a lawyer to prepare the necessary notices and to follow the court process to avoid potential lawsuits.
Outlines
🏢 Real Estate Investing: Triple Net Properties
The speaker begins by addressing the concept of Triple Net properties, explaining how they work as an investment. He uses an example of purchasing a property for $1 million, with 80% financed by a bank at 4% interest, and the investor putting up 20%. The property is expected to generate a 7% return, which equates to $70,000 annually. After paying the bank interest of $32,000, the investor earns a 17% return on their $200,000 investment. The speaker also touches on the benefits of owning the property for depreciation and tax advantages, and contrasts this with land leasing.
🏠 Principal Residence and Real Estate Profits
The speaker discusses the tax benefits of living in a property for two years as a principal residence before selling it. He explains that any profit made from the sale can be tax-free, using the example of a $250,000 home that appreciates to $500,000. He encourages viewers to take advantage of this strategy and buy, live in, and sell properties every two years to maximize profits. Additionally, he advises viewers to get pre-qualified for a loan before house hunting.
📈 Improving Property Value and Cash Flow
The speaker talks about increasing property value through improvements and refinancing. He explains that by fixing and managing a property better, one can increase its value and subsequently refinance to pull cash out. He also discusses the concept of 1031 exchanges and the importance of consulting with a CPA. The speaker then addresses a question about building affordable housing with containers, suggesting that one should visit such a unit before investing. He also discusses the best flooring for rentals, advocating for tile or laminate over carpet.
🛒 Retail and Residential Combo Properties
The speaker discusses the potential of owning a storefront with an apartment above it, emphasizing the importance of location and tenant compatibility. He warns against buying properties like a nightclub with residential units above due to noise issues. The speaker also shares his experience of buying a Rolls-Royce at a significant discount and改装 it. He advises on seeking professional help for larger real estate moves and the importance of not being over-leveraged, especially in a potential economic downturn.
💼 Evictions and Legal Procedures
The speaker addresses the best way to evict tenants without going to court, emphasizing the importance of following legal procedures and consulting with a lawyer. He warns against taking matters into one's own hands and the potential legal consequences. The speaker also discusses the importance of being prepared for economic changes and not overextending oneself financially in real estate investments.
🏡 High-End Property Market Analysis
The speaker analyzes the market for high-end properties, using an example of a 10,000 square foot home in the Chicago area. He discusses the challenges of selling such properties if the market is flooded or if demand is low. He advises using real estate agents for market information and making decisions based on current trends. The speaker concludes by encouraging viewers to get involved in real estate, whether through buying, selling, or flipping properties.
Mindmap
Keywords
💡Triple Net Lease
💡Cap Rate
💡1031 Exchange
💡Depreciation
💡Principal Residence Exclusion
💡Refinancing
💡Cash Flow
💡Over-leveraging
💡Pre-qualification
💡Recession
Highlights
Explanation of Triple Net Properties and their financial benefits
Calculation of returns on a $1 million Triple Net property investment
The importance of choosing a reliable business for Triple Net properties
How bank loans affect the returns on Triple Net properties
Tax implications of owning Triple Net properties
Advantages of owning the building in a Triple Net lease
Tax-free profit from living in your own property for two years
Strategy for making money in real estate every two years
Importance of getting pre-qualified for a loan before house hunting
Discussion on the potential of 1031 exchanges for profit
Ways to increase property value and cash flow through improvements
Advice on dealing with tenants and evictions legally
Recommendation for flooring in rental properties
Pitfalls of buying a storefront with an apartment on top
Thoughts on purchasing a high-end car as an investment
Strategies for increasing cash flow through real estate investments
Advice on dealing with an economic recession in real estate
Analysis of a potential real estate deal in the Chicago area
Encouragement to get involved in real estate business
Transcripts
[Music]
so at the request of many I'm going to
answer comments because some people just
don't get it I mean so let's start at
the beginning for all the people out
there that don't get it I'm gonna try to
give it for all the people already know
this stuff
go wash your car all right here we go
Luis Campos says how much proper do you
actually make with Triple Net properties
does the mortgage take up most of the in
government okay triple net very simple
you buy a triple net for 1 million
dollars ok I don't know a chicken place
or a blood store whatever ok make sure
it's a good one not going out of
business you give them a million but
well you go to the bank you say hey I
want to buy this place just say fine
they're gonna put up 80% you're gonna
put up 20% how much is 80% of a million
dollars how much $800,000 20% $200,000
ok now you can trade hopefully if it's a
good deal if you're really good and
strong it'll be a seven baby so a seven
cap is no difference in 7% of the
million dollars you will get seventy
thousand dollars a year in pure 100%
management free income seventy thousand
dollars a year okay then you got to pay
the bank because they put up eight
hundred grand in this day and age you
could easily get four percent if you're
a big shot you can get three percent but
let's say you get four percent supply
and the bank is going to charge you four
percent on the eight hundred thousand
dollars that is eight times four thirty
two thirty two thousand a year and he is
seventy goes to the bank for interest
and make sure you get an interest
alone for at least the term of the lease
remaining so fine you get 70 grand a
year you're gonna pay the bank 30 2070
from 32 is 38 thank you very much
now your $200,000 is gonna give you a 38
$38,000 year return okay that's like
over that's like 16 17 percent about 60
to 70 percent it's simple that's the way
triple nets work okay you're using the
bank's money and borrowing at 4% but you
collected 7% so you get that spread at
3% on the bank's money and then you're
still getting to seven percent on your
money you put that together and all in
you get about 16 or 17 percent now make
sure that you try to buy the building
too because then you can depreciate your
interest and you'll pay practically no
tax talk to your accountant about that
he'll explain that one okay if you do a
land lease you don't have a building to
depreciate so you're gonna pay some tax
on it that's a triple net simple 1
million dollar deal in real estate okay
next I hope that answers send your
account poses question and I can't make
this phone work and you may go back you
know a big thing that probably I'm
probably the whole home thing okay if
you buy a house and you live in it for
two years and it's your principal
residence okay this is the one thing
people don't get an ad this is the
easiest way for anybody to make money in
real estate tax free you buy a house you
live in over two years normally normally
not always prices go up you make it
proven to the house prices go up so
let's say you buy a house for $250,000
you live in him in two years the market
goes up the neighborhood gets better you
put some paint on it you fixed it up
whatever it's now worth five hundred
thousand when you go to sell it after
living in for two years you could sell
it for five hundred thousand dollars and
that $250,000 profit you pay nothing you
keep it in your pocket tax-free one
hundred percent if you're married you
can make up to a half a million dollars
the day I married my wife she was worth
the quarter million bucks in tax free to
me because I bought my house of five
hundred thousand we got married I lived
in here for two years we sold it for a
million that five hundred thousand from
that house was tax-free everybody should
do that anybody can do it and if you're
smart you go out you look for a good
deal on a house you picks it up you make
sure you do it in a decent neighborhood
and every two years if you're married
and you buy the right deal you can make
a half a million dollars every two years
tax-free if you're single to 50 the
wife's gonna of course you have a 250
anyway so it's a wash my wife might have
save me 250 when I married her but just
cost me millions in the past 15 years
the most important thing is you live in
your house in two years you get a
$250,000 profit that is tax-free get out
there buy a house living every two years
sell it and make some real money
tax-free let make sure you go to the
bank and get pre-qualified before you go
out shopping you want to go out shopping
with no money behind you all right this
comment says I really have to answer
these comments so this one says this
guy's a walking heart attack now if I
ran I'd be a heart attack but walk in
I'm doing all right I'm not gonna go
into that one please keep uploading this
is gold Jerry gold alright thank you
next one babe and how do you actually
earn profit into your pocket from your
deals if you always 1031 exchange them
is it just cash flow from the rent okay
here we go yes it is cash flow from the
rental income that's guaranteed you know
but if you buy a property and you start
fixing it and tweaking it and managing
it better then you can increase the
value of it
so once you buy the property you get in
there I typically think the cash flow to
make improvements if they need it and
then you got a nice of property so let's
say I don't know how long it takes you
six months a year later you got a
property that you paid a million for but
now can be worth a million and a half so
what do you do you go back to the bank
and you say hey Bank the property's not
worked a million 1/2 bucks you get a
loan borrowed money is tax non-taxable
you can borrow money for the bank and
it's non-taxable but don't take what I
say go to your accountant and always
always consult with your CPA ok but I'm
gonna tell you from my thirty years you
don't pay tax on money that's borrowed
but you will have to pay that money back
when you sell so that's how you make
money you buy it you fix it you improve
it you refinance it and then you get
some money in your pockets and then when
you sell it you pay everybody back and
it should still be some profit left to
put more money in your next 1031 to do
the next deal I call it the recycling
program man I met your son at the
Jasmine homes inspection longtime
follower and I want to know what is
something that you learned that saves
you lots of money on your next deal you
know you save money by trying to save
money you know get bids price things out
on investment do you regret the most
children no I'm just kidding I got I
make money of my kids that's a joke
what do you think about building
affordable units out of containers and
renting them out
I don't know containers it's a whole new
thing I don't know you need to go visit
some first I wanted to go look at
something there at st. Pete here but
they are doing rental units out of
containers I think they started in
Russia I don't know being in a steel
container and cutting in Windows I don't
know I've seen these containers I don't
think I want to live in one but go visit
one first maybe spend a night in one and
then you decide and then let me know
it's tile the best flooring for a rental
what hidden problems can there be when
buying a storefront with an apartment on
top and renting both thank you for
everything Ben and team okay I'm a
strong believer in tile flooring but the
newest thing that's out is they have a
laminate that looks like tile that's
very durable and a lot cheaper and a lot
less labor intense but of course tile
laminates they're all great services now
because you can mop them they don't get
beat up that bed you know you can't burn
them like carpeting you know you can't
get really stains on it that much so
yeah everybody's going with tile or a
really good laminate now so definitely
go that route if you can because in the
long run it's gonna save your money
carpet is a painted in deck what it
promised would be okay if you buy a
storefront one apartment on top they
used to be like it was the old days and
now it's coming back you got retail
below and you have people living
residential on top I mean it is what it
is it's fine as long as it's in the
right location and you can rent that
store out and people don't mind living
above a store I mean especially was an
urban area
I mean ninety percent of people in New
York City live above some sort of retail
so as long as you can find a tenant for
the store and find a good tenant to live
above them it works you know everything
works just don't buy a disco or a club
and then put somebody on top of because
that could be a problem you know boom
boom boom you know the tenant meeting I
liked it that much unless you rent to
the people at work in a club and then
it's okay because they sleeping today
when the club's closed
all right here we go are you going to
buy a new phantom yes we bought a
phantom but we didn't buy new we bought
a $580,000 phantom for $280,000 why two
years old looks the same feels the same
five thousand miles that's nothing on a
rolls-royce okay so yeah you'll be
seeing that car soon problem was it was
silver and I don't like silver cars so
we went and had it bubble wrap - a
wrapped so now it's white and nobody can
tell and don't tell nobody I have about
5.5 million dollars in holdings with
only 600 in notes and we are looking to
make bigger moves to increase cash flow
trail bars or apartments complex or
shopping centres can really need some
help Edward
okay Edward I mean if you're in st. Pete
I hear fourth Streets really jumping
okay right now I think Saint Pete is a
really good area especially if you're
going that gateway area right now and
really the only deals I see a retail
okay you can't such apartments the
numbers do the prophets like minuscule
okay so you know if you want to go down
4th Street go down to busiest streets in
the nicest neighborhoods and look with
some retail shops maybe then you can buy
and fix up or something like that that's
the only thing I can think of in st.
Pete right now or you can buy a boat
parking in the monoi and that air B&B
without them knowing it
I got a boat right here you can use here
we go with the phone what are you doing
here
all right big Blair says best way to a
big tenants without going to the courts
the best way it's a lot of ways but
there's no the only legal way
all right unfortunately it's not the
1950s where you take the front door off
the unit and you turn to gas electric go
up you can't do that no more
Hey I'm gonna tell you right now don't
fool around with evictions get a lawyer
all he does is a fiction see doesn't
charge a lot of money okay do it legally
that noise are the best things up yes he
has to start the engines every every 20
minutes or up they may not start he said
this is cheap charge calm all right
where were we emissions do not fool
around because there are lawyers out
there they're just waiting you to do
something wrong as soon as you okay the
whole thing will turn around on you I
hope you're not calling hope you're not
doing that victory in California goes
down well or New York because I'll get
really ugly listen do yourself a favor
get a lawyer let him prepare the notices
if they didn't pay the rent give a
three-day notice to pay or get to pay
acquit turn a lease and a little
three-day notice over to the lawyer let
him handle it having a few hundred bucks
pay the court fees you got sometimes
just gotta bite the bullet
you know people ain't got the money what
are you gonna do they can't pay it and
they don't think I know where to go so
just use the court system it's not a
long process unless you're in New York
or California then you screwed but do it
with a lawyer the victim the right way
because you don't want to open yourself
up to a lawsuit okay it'll be ugly
you might even who knows we're gonna
happen to you and there's no insurance
to protect you on that
okay here we go Ben how are you
protecting yourself against the upcoming
we're so sad listen you know you got to
go with the time you go with the flow
you know I don't know I'm not a
financial expert I don't even know what
the hell recession really means what
does that mean retaking a recess anyway
listen the market something markets down
the most of one thing is not to be over
leveraged on your properties okay make
sure you can make your mortgage payments
okay that's where people get screwed and
hurt don't overpay for real estate and
don't over leverage you okay so god
forbid if something happens in rent
start going down that's the only thing I
can think of hurting you
you know you'll be put yo yo up some
sort of comfort zone so you know it's
got to go with the times if wrench their
upper rents and down its life but I
don't know if it was such it's coming to
none I think there's gonna be a
correction but not a recession okay ten
thousand square foot home going for
seventy eight hundred thousand in
Chicago area twenty to twenty five
thousand the property taxes right in for
forty five hundred fifty five hundred a
month
forty percent replacement cause what do
you think and he said area twos just
very over built no eight ten thousand
square foot home for seven hundred gram
what's that seventy bucks a square foot
yeah I mean it sounds like it there
fifty cents in a dollar but it's all
about the market you know are they
selling are people buying them that's
the whole thing how many are available
just because it's cheap you'd be sitting
around with something that's cheap if
nobody's buying it then ain't no good I
mean if they're selling them and you can
go on that's why you got to use real
estate agents the real estate agents
they're they're there to help you and do
their job they'll tell you what is sold
what's comparable when did it so how
much did it sold how many square feet
the old information in their little
computer they spit it out for you and
they can tell you exactly what's going
on then you have to make your decision
based on what's happening ex door to you
that's what you got to do so you know
yeah it sounds like a really good deal
but if nobody's buying them who wants to
sit around with a house I mean yeah you
can rent it out fine if you spend it as
he's been 803
800 grand you could have to put down
160,000 20 percent down in a house like
that 160 form 800 grand is what 640 640
thousand for the bank is 640 thousand
mortgage times porpoise said played safe
so it's gonna close to 2 grand a month
in interest only if you collected 4500
you got to grab branches only you're
gonna have to grandpa the taxes
according to what you told me you got no
cash flow so it don't pay to buy an
$800,000 house and rent it out for 5
grand a month
cuz I'm trying to pay the interest your
taxes your insurance if there's any
maintenance you got no cash flow you're
working for free so I wouldn't buy it
unless you can flip it
that's enough comments for now I got
today off for a change we're gonna
that's it for the comments I got a day
off we went to cheap charters calm we
got this big great boat we're gonna test
out today we're gonna put Vince out on a
wakeboard and see what he can do and
we're gonna take it easy get out there
go find a real estate broker to help ya
go to the bank get pre-qualified for a
loan and get busy and find a deal people
die every day people have been divorced
there's a million reasons why people
sell their houses get out there find a
house fly to duplex find something just
get in the biz baby
[Music]
you
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